Which raises a larger question: why is Europe falling behind? The average European is much better off than the average Chinese, and the EU population of 450 million is larger than that of America, with its 324 million. And yet in one industry after another, Chinese or US firms dominate world markets and global rankings. Between them, Chinese and American firms are responsible for 40% of global output.

Even worse, Europe is lagging behind the United States and the People’s Republic in fast-growing, innovative industries, not least artificial intelligence — in part because European R&D spending is half that of  its Chinese and American rivals. 

The upshot, then, is that the lack of pan-European champion firms that can invent and invest in new technology, dominate the European market, and make inroads abroad, is the fundamental cause of Europe’s lack of competitiveness with the United States and China — not the costs of the European welfare state, or higher labor union density, or export surpluses, or high energy costs, or other factors that are often cited.

Some degree of relative decline by Europe is unavoidable. The economic development of China and other parts of the world naturally is causing both the American and European shares of global GDP to shrink. While shares of world GDP are important for military power, in the long run, progress in an advanced society depends not on overall output, which can be boosted merely by population growth, but on productivity growth — making goods and providing services with less labor and other material inputs over time, thanks to technological innovation. 

That’s why Europeans should be concerned by the fact that, between the outset of the pandemic in late 2019 and 2024, labor productivity per hour grew by only 0.9% in the eurozone (in the United States, by contrast, it grew nearly 7%).

Since the Industrial Revolution, labor productivity has mostly been driven by technological innovation. Today’s libertarians, trust-busters, and populists don’t want to hear it, but modern technological progress isn’t incremental and driven by constant competition for customers among many similar firms. Rather, it is transformational and driven by radical technological breakthroughs whose development and deployment must be paid for by the deep pockets of giant firms, along with governments and huge pools of venture capital.

Laptops didn’t evolve incrementally as a result of free-market competition among manual typewriters; they drew on new technologies, originally developed by the US government and big firms like IBM, rendering typewriters obsolete. 

More from this author

The lie of the white-collar job

By Michael LInd

The economist Joseph Schumpeter coined the term “creative destruction” to mean the replacement of entire products and entire industries by technological innovation, which he described as a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” In the words of Schumpeter: “The capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within reach of factory girls.”

Nylon stockings for women were made possible by corporate chemistry labs and mass-production factories — Big Chemistry and Big Factory, to use the pejorative language of today’s antitrusters — not by competition among small businesses. Contra Hollywood and business-school mythology, the next big breakthrough technology isn’t going to come from a college dropout in his parents’ garage or an eccentric solitary inventor with Einstein hair.

When laptops wiped out typewriters, and nylon stockings replaced cotton and wool stockings, they wiped out a lot of jobs. That’s OK. A dynamic technological economy doesn’t have to be anti-worker. On the contrary, high wages give employers an incentive to substitute technology for labor. But it must be easy to close down failing businesses and shrink obsolescent industries, while transferring workers as painlessly as possible to dynamic firms and growing sectors. 

Economists call this “labor-market churn.” According to the US Federal Reserve, during the recession that came in the wake of Covid, three times as many American as European workers changed jobs, even though the workforces of the United States and the European Union are comparable in size.

While the European social model has much to teach America in terms of social insurance and sectoral collective bargaining, all too often, the attempt to preserve specific jobs means preserving specific companies and specific industries, as well, and this reactionary preservationism comes at a price in an era of transition from one techno-economic paradigm to another.

The reason is simple. There are two ways that technological innovation can spread throughout the economy. One is the brutal Darwinian method — the early adopters of innovation wipe out their less-innovative rivals and replace them. A gentler alternative to mass extinction is for government to diffuse technological innovations to small businesses, which, unlike big firms with deep pockets or promising startups with rich backers, lack the ability to invest in R&D and new machinery or software.

As a guest of the French government some years ago, I met with local officials seeking to create their version of Silicon Valley. Using a 1960s-vintage overhead projector, they showed me a diagram of links and partnership among a dozen local firms and educational institutions and asked what I thought of their plan. I explained: “In the United States, we are much more Darwinian. A few successful firms drive the others out of business and absorb their workers and assets.” An official smiled ruefully and said, “In France, no institution can ever be allowed to die.”

It is true that there have been successful examples of this kinder and gentler, non-Darwinian approach to the diffusion of new technologies. In America, land-grant universities helped modernize American agriculture by diffusing scientific and engineering breakthroughs to existing family farmers with the help of county extension agents. In Germany, the Frauenhofer Institute offers R&D and technological instruction to small and medium enterprises that otherwise might not be able to afford them.

As a practical matter, however, the Darwinian, winner-take-all method is the quickest and most efficient way to bring about a technological upgrade of an economy. The permissive attitude toward firm destruction in the United States has allowed firms with new internet-based models — Amazon (retail), Office Depot (hardware), Lowe’s (home supplies) — to annihilate many of their struggling and technologically primitive Mom-and-Pop store rivals. And America’s permissive approach to mergers and acquisitions allows startups to grow by incorporating other companies and likewise permits entrepreneurs to sell innovations to existing big firms that can provide scale.

The Darwinian method of technological development and diffusion by individual firms only works if the baby tyrannosaur, after hatching, can grow to great size. The most technologically advanced sectors of the economy, like manufacturing and software and telecommunications, are characterized by increasing returns to scale or network effects that reward sheer size. In these sectors, free-market competition will quickly result in the elimination of many firms and the domination of an industry by one or a few winners — not because the winners are cheating monopolists, but because they benefited as lucky first movers from the ability to scale up rapidly.

The ability of dynamic firms to scale depends not only on permissive competition laws that allow some firms to die and others to grow or merge, but also on the size of the market, both at home and abroad. Populous countries, including China and the United States, tend to dominate the Olympic games and other international sports competitions. Darwinism again! The best soccer players from Brazil (213 million people) tend to be better than the best soccer players from Suriname (population 645,000). 

As with athletes, so with corporations. Companies from Japan and Germany do well in global trade in part because Japan and Germany are the two most populous democratic capitalist industrial nations, after the United States. And as a rule in Europe, the wealthier nations have the largest shares of their workforces employed by large and medium firms, like Sweden, France, and Germany, while the countries with the highest employment by small businesses tend to be poorer (Greece, Italy).

China’s national champions are supported by the state in various ways intended to minimize the Middle Kingdom’s reliance on foreign technology and foreign firms. They include Huawei in telecom, Xiaomi in consumer electronics, and the Aviation Industry Corporation of China. Both Europe and the United States have imposed tariffs to protect their own automobile companies from China’s state-sponsored electric-vehicle champion, BYD.

Having lost global market dominance to China in many manufacturing industries, the United States holds its own in IT thanks to American champions like Microsoft, Apple, Alphabet, Meta, and IBM. In the AI race with China, the American team is led by giant firms including Nvidia, Anthropic, and OpenAI.

What about Europe? Apart from Airbus, there is no pan-European techno-industrial giant comparable with these Chinese and American titans. To be sure, there are national champions based in individual European nations: France’s Dassault Rafale in defense, Germany’s BMW and Volkswagen in auto. As one observer notes, “Europe is a graveyard of failed [pan-European] national champions. They span from the glamorous Concorde to obscure ventures like pan-European computer consortium Unidata or notorious Franco-German search engine Quaero” (googling became a verb; no one remembers Quaero).

Attempts to create purely national, rather than pan-European, champions have often failed, as well. After World War II, the British government sought, by means of mergers and industrial policy, to consolidate inefficient industries and create colossal British national champions that could compete with the big American firms: British Steel (steel), British Leyland (auto), International Computers Limited (IT). The execution was a failure, but the strategy was sound, as we can see from the success of immense Chinese and American firms.

Unfortunately, European “competition policy” — what in the United States is called antitrust — is a major obstacle to the scaling up of European firms that can boost productivity and compete with those of China and the United States at the global level. In 2019, the European commission refused to allow a merger between the two biggest train-signaling and railcar systems companies, Germany’s Siemens and France’s Alstom, even though the new corporation might have dominated markets outside of Europe as well as within. 

Suggested reading

The Pope versus the President

By Sohrab Ahmari

Unable or unwilling to understand the industrial economics of imperfect markets and economies of scale, European competition-policy advocates (along with American progressive and populist antitrusters) cling to pre-industrial free-market dogma. According to Margrethe Vestager, a former EU competition policy officer, “competitiveness within a single market translates into external competitiveness.” On the contrary, as China’s and America’s national champions demonstrate, dominance of a single market translates into competitiveness in global markets, and that kind of dominance can never be obtained if a national or bloc government insists on mechanically breaking up successful companies or preventing mergers in order to keep companies small. 

Within Europe, there is growing recognition that scale matters in productivity growth and global commerce. French President Emmanuel Macron has proposed that companies be allowed to increase their scale by consolidation, and the lowering of barriers to a single truly integrated European market in strategic sectors. In Germany in 2019, at the time of the EC anti-merger ruling, Economy Minister Peter Altmaier proposed an industrial policy involving the creation of European national champions.

From a technocratic point of view, creating a genuine European single market in which pan-European national champions can be born and grow to compete with Chinese and American titans in global markets makes sense. Is it politically realistic? It will be difficult.

Viktor Orbán may have lost his bid for re-election, and Trump may have alienated his European allies on the Right, but “national sovereigntism” will remain a major force in European countries.  The attempt to create a single European market in labor, in which Albanians and Poles willing to work for lower wages could move to Britain, backfired and motivated Brexit. And while pseudo-populists may campaign as nationalists and then govern as pro-business transnational neoliberals, nationalism is likely to ensure that the project of creating genuine “single markets” in European labor, services, banking, and energy is doomed.

But a compromise between a single European superstate and a nationalist Tower of Babel might be found in the idea of a “multi-speed Europe” in which some member nations can agree to greater integration in certain sectors without requiring others to join them.  Already membership in the Eurozone currency bloc and the Schengen Agreement governing border checkpoints are examples of differential integration. If a few of the larger European countries like Germany and France agree to support European champions in particular strategic industrial sectors, it should not be necessary to give Malta, Luxembourg, and Cyprus a veto. The inspirational success of Airbus should negate the paralyzing memory of failures like the Concorde.

To call a company or an industry a “dinosaur” is usually to dismiss it as doomed to extinction. But in today’s global Jurassic Park, to avoid extinction, Europe needs some young, vigorous dinosaurs of its own.

Correction: An earlier version of this essay misstated the population of Suriname.

The Sleep Number Bed is typical of smart home devices, as Harvard business school Professor Shoshana Zuboff describes in The Age of Surveillance Capitalism. It comes with an app, of course, which you’ll need to install to get the full benefits. Benefits for whom? Well, to know that you would need to spend some time with the 16-page privacy policy that comes with the bed. There you’ll read about third-party sharing, analytics partners, targeted advertising, and much else. Meanwhile, the User Agreement specifies that the company can share or exploit your personal information even “after you deactivate or cancel … your Sleep Number account.” You are unilaterally informed that the firm does not honor “Do Not Track” notifications. By the way, the bed also transmits the audio signals in your bedroom. (I am not making this up.)

More from this author

How science has been corrupted

By Matthew Crawford

The business rationale for the smart home is to bring the intimate patterns of life into the fold of the surveillance economy, which has a one-way mirror quality. Increasingly, every aspect of our lives — our voices, our facial expressions, our political affiliations and intellectual predilections — are laid bare as a data to be collected by companies who, for their own part, guard with military-grade secrecy the algorithms by which to use this information to determine the world that is presented to us, for example when we enter a search term, or in our news feeds. They are also in a position to determine our standing in the reputational economy. The credit rating agencies and insurance companies would like to know us more intimately; I suppose Alexa can help with that.

Allow me to offer a point of reference that comes from outside the tech debates, but can be brought to bear on them. Conservative legal scholars have long criticized a shift of power from Congress to the administrative state, which seeks to bypass legislation and rule by executive fiat, through administrative rulings. The appeal of this move is that it saves one the effort of persuading others, that is, the inconvenience of democratic politics. 

All of the arguments that conservatives make about the administrative state apply as well to this new thing, call it algorithmic governance, that operates through artificial intelligence developed in the private sector. It too is a form of power that is not required to give an account of itself, and is therefore insulated from democratic pressures. 

In machine learning, an array of variables are fed into deeply layered “neural nets” that simulate the binary, fire/don’t-fire synaptic connections of an animal brain. Vast amounts of data are used in a massively iterated (and, in some versions, unsupervised) training regimen. Because the strength of connections between logical nodes is highly plastic, just like neural pathways, the machine gets trained by trial and error and is able to arrive at something resembling knowledge of the world. The logic by which an AI reaches its conclusions is impossible to reconstruct even for those who built the underlying algorithms. We need to consider the significance of this in the light of our political traditions.

When a court issues a decision, the judge writes an opinion in which he explains his reasoning. He grounds the decision in law, precedent, common sense, and principles that he feels obliged to articulate and defend. This is what transforms the decision from mere fiat into something that is politically legitimate, capable of securing the assent of a free people. It makes the difference between simple power and authority. One distinguishing feature of a modern, liberal society is that authority is supposed to have this rational quality to it — rather than appealing to, say, a special talent for priestly divination. This is our Enlightenment inheritance. It appears to be in a fragile state. With the inscrutable arcana of data science, a new priesthood peers into a hidden layer of reality that is revealed only by a self-taught AI program — the logic of which is beyond human knowing.

The feeling that one is ruled by a class of experts who cannot be addressed, who cannot be held to account, has surely contributed to populist anger. From the perspective of ordinary citizens, the usual distinction between government and “the private sector” starts to sound like a joke, given how the tech firms order our lives in far-reaching ways.

More from this author

The danger of safetyism

By Matthew Crawford

Google, Facebook, Twitter and Amazon have established portals that people feel they have to pass through to conduct the business of life, and to participate in the common life of the nation. Such bottlenecks are a natural consequence of “the network effect.” It was early innovations that allowed these firms to take up their positions. But it is not innovation, it is these established positions, and the ongoing control of the data it allows them to gather, that accounts for the unprecedented rents they are able to collect, as in a classic infrastructure monopoly. If those profits measure anything at all, it is the reach of a grid of surveillance that continues to spread and deepen. It is this grid’s basic lack of intelligibility that renders it politically unaccountable. Yet accountability is the very essence of representative government. 

Mark Zuckerberg has said frankly that “In a lot of ways Facebook is more like a government than a traditional company.” If we take the man at his word, it would seem to raise the question: can the United States government tolerate the existence of a rival government within its territory? 

In 1776, Americans answered that question with a resounding ”No!” and then fought a revolutionary war to make it so. The slogan of that war was “don’t tread on me.” This spirited insistence on self-rule expresses the psychic core of republicanism. As Senator Amy Klobuchar points out in her book Antitrust, the slogan was directed in particular at the British Crown’s grant of monopoly charters to corporations that controlled trade with the colonies. 

Today, the platform firms appear to many as an imperial power. The fundamental question “who rules?” is pressed upon America once again.

This is an edited version of Matthew B. Crawford’s testimony before the US Senate Judiciary Committee on June 15th 2021.

Shockley was as close to a rock star as it got in the science world. Having won the Nobel Prize for co-inventing the transistor, many people thought he had gone mad when he moved to Palo Alto to found the Shockley Semi-Conductor Laboratory. But he had his reasons. He had grown up in the area, and he wanted to return home to help his ailing mother.

Shockley hired an all-star cast to join him – experts in physics, metallurgy and mathematics, they abandoned the East Coast to work on the commercialisation of the transistor. Robert Noyce, one of the hires, said getting the call from Shockley was like picking up the phone and talking to God.

Read the series

When competition ends in conspiracy

By Jonathan Tepper

Shortly after arriving, however, they discovered he was an erratic and difficult boss. He was a genius, but a jerk, and not just your ordinary, run-of-the-mill jerk. He was an epic egomaniac – and had tried to claim sole credit for the invention of the transistor. Later in life, he spent his time espousing a racist eugenics agenda, promoting a high-IQ sperm bank, and losing all contact with his children. He was, by most accounts, a horrible boss.

Within a year of joining Shockley, the new hires decided to leave and found a new company – Fairchild Semiconductor. Later dubbed the ‘Traitorous Eight’, they signed one-dollar bills in place of formal contracts – a symbol of nonconformity.

Many consider this act of employee treachery as the definitive moment of Silicon Valley’s creation. It set a precedent of ‘can-do’ entrepreneurialism and loyalty to lofty ideas, rather than individual firms and egos.

Noyce, only 29 at the time, was the ringleader and the group’s transistors expert. Eventually, Noyce and his colleague Gordon E. Moore outgrew Fairchild, and again poached employees to start Intel. In 1971, only three years after founding Intel, Noyce made history yet again with the invention of the Intel 4004, the world’s first microprocessor. He had invented the beating heart of the modern computer.

Suggested reading

Time to topple the technopoly

By Charlotte Pickles

Silicon Valley owes its success to many things – access to capital, proximity to Stanford (one of the best universities in the world), and access to a vibrant Pacific hub in San Francisco. But what helped make it the innovation capital of the world is rarely discussed: California is one of the few states where non-compete clauses in work contracts are completely non-enforceable. In other words, employees have full rights to leave and work for a competitor.

In many other states, employees may be asked to sign a non-compete agreement as a condition of their employment. The terms vary considerably, but the basic idea is that if you are fired or quit your job, you cannot work for a competitor within the same industry for a certain period of time. These clauses make it difficult for workers to leave jobs and bargain for higher wages elsewhere.

Back in 1872, California made it illegal for employees to be bound to a specific employer. This state law is still in effect nearly 150 years later, and the lack of non-competes has proven a powerful factor in the Valley’s success. To this day, Boston lags Silicon Valley in the commercialisation of new technologies.

Imagine where the Valley would be today if Noyce had been prevented from defecting? What if Wozniak had never left Hewlett Packard to join Steve Jobs? Where we would be if Nikola Tesla were prevented from leaving Thomas Edison?

Suggested reading

Google, Amazon, Facebook: It's time to smash Silicon Valley monopolies

By Nigel Cameron

Silicon Valley’s history demonstrates that respect for worker talent was prized above strict company loyalty. This led to a malleable ecosystem, where good ideas spread quickly from company to company and innovators were free to choose their own fates. Professor AnnaLee Saxenian, author of many books on the tech industry, points out that, “In the early days engineers would say, ‘I work for Silicon Valley.’ And the idea was that they were advancing technology for a region, not any single company’s technology.”

If Noyce thought Shockley was God in the early 1950s, Steve Jobs idolised Noyce in the 1970s. When Apple was starting, Noyce was already a legend with Intel. “Bob Noyce took me under his wing,” Jobs said. “He tried to give me the lay of the land, give me a perspective that I could only partially understand.” Jobs continued, “You can’t really understand what is going on now unless you understand what came before.”

Although Jobs worshipped Noyce, he failed to give his own Apple employees the same freedoms that allowed Noyce’s best innovations to flourish. In 2014, it came to light that Jobs had been preventing employees from moving to other companies. Silicon Valley was founded on freedom of mobility for workers, but the tech giants – Apple, Facebook, Google, Adobe and many others – were caught in “gentlemen’s agreements” to not poach each other’s employees. Staff brought the case forward claiming that these pacts made it difficult to market their skills and that they also suppressed their salaries.

Suggested reading

What government can do about the winner-takes-all economy

By Peter Franklin

As part of the lawsuit, emails came out in court between Steve Jobs and Eric Schmidt, the CEO of Google, “I am told that Google’s new cell phone software group is relentlessly recruiting in our iPod group. If this is indeed true, can you put a stop to it? Thanks, Steve.” In another email, Larry Page from Google sent a distressed message saying Steve Jobs had threatened war if a single one of his staff were hired.

In the end, the agreement not to poach went out across Silicon Valley. Google, Adobe and others developed Do Not Hire lists. This was clear collusion, and the tech firms were forced to pay a $324.5 million fine for their illegal non- compete pact.

Further Reading

Marxist McDonnell has a plan to save capitalism

By Daniel Haynes

The non-compete problem did not end there. These contractual arrangements are now spreading like an epidemic across the entire economy and hurting the poorest the most. Today non-competes cover almost 18% of the entire American workforce and nearly 40% have signed one in previous jobs. Only California and three other states (Montana, North Dakota and Oklahoma) ban non-compete agreements in the US.

Lawyers sometimes argue that these clauses help protect trade secrets, but is there any good reason to ask camp counselors, janitors, and personal care workers to sign them? There are already federal laws dedicated to protecting Intellectual Property and today even those who clearly do not possess trade secrets are made to sign them, including 15% of workers without a four-year college degree and 14% of people earning less than $40,000.

These employment clauses are found in a staggering percentage of America’s largest fast-food chains with minimum wage employees. Chains like Burger King, Carl’s Jr., Pizza Hut and, until recently pressured in 2017 to drop them – McDonald’s. These no-hire rules affect more than 70,000 restaurants – more than a quarter of the fast-food outlets in the US – according to Alan B. Krueger, who is an economist at Princeton University.

Suggested reading

The collapse of unions is corrupting capitalism

By Denise Hearn

If you’re wondering what Pizza Hut has to lose if one of their store workers decides to work for another Pizza Hut across town, the answer is simple: the fewer options workers have, the less freedom they have to find a company that might pay a higher wage. The only function of these rules is to limit worker mobility and diminish their ability to bargain for wage increases. This is modern day feudalism, and workers have become vassals to corporate lords.

The truth is that non-competes only help firms that want tight control over employees. They do little for a given industry at large or for the economy. They harm workers and are disastrous for workers’ wages.

Often employees do not realise they are signing away their right to work somewhere else, as firms are not legally obligated to disclose non-compete clauses in almost all states. According to a study by economists Matt Marx at MIT and Lee Fleming at Harvard University, barely 3 in 10 workers were told about them in their job offer, and in 70% of cases, they were asked to sign them after they had already accepted the offer and turned down any alternatives. Half of the time, non-compete agreements were presented to employees on or after their first day of work.

Further Reading

Could Mill's model mend capitalism?

By Victoria Bateman

Barring workers from moving in search of better opportunities only works in an environment where firms have all the power. Because of industrial concentration, a number of firms now have monopsony power – that is, they are the only buyers of labour. A monopoly means there is one seller, and a monopsony means there is only one buyer.

In a monopsony, workers have little choice in where they work and have little negotiating power for wages with employers. In a healthy economy, many firms would be competing equally for workers and would be incentivized to entice new hires with higher wages, better benefit packages, and few restrictions on their next career moves. But monopsonies make it easier for firms to depress worker wages. The classic example of this is a coal-mining town, where the coal plant is the only employer and only purchaser of labour. Today, in many smaller towns, Walmart is the new coal plant – and is the only retail company hiring.

With burdensome occupational licensing, forced arbitration, and increased industrial concentration thrown into the mix, American workers are now faced with pressure on all sides. Without a strong union movement to provide a countervailing power, American workers are left to fight alone.

This is a toxic cocktail. The hangover from increased corporate power is real, with many struggling to meet basic needs. This is not the free capitalism we need or the hope that drove the ‘traitorous eight’ in Silicon Valley decades ago. Workers deserve better.

This is the second of three extracts from “The Myth of Capitalism: Monopolies and the Death of Competition” a new book co-authored by Jonathan Tepper and Denise Hearn.